Starting a new business…. there are many different to structure your business to ensure that you are compliant with all the rules legally. Typically, Sole Proprietorship, Partnership, Limited Liability Company (LLC) and Corporations (most common type of small business. All these types of companies carry their own advantages and disadvantages. This article will provide an overview of these four types of businesses to help you make a very important decision.

1. Sole Proprietorship

This type of business is not incorporated and in comparison, to other types, provides little financial and legal protection, as there is no separate entity to cover those bases. The owner and the business share identity and therefore, the liabilities incurred by the business are the proprietor, in other words, the owner of the business. Regulation requirements for this type of business are few compare to other types.

Choose this type, if you wish to be in full control of the business. As far the tax liability goes, the income in this business will be considered personal, therefore you do get tax benefits.

2. Partnerships

If the business is owned by two or more people it is known as partnership, as suggested by the type of business itself. In partnership the business passes the income to the owners and they are taxed on individual tax rate for ordinary income. Also, the owners are held responsible for any labilities incurred.  Different types of partnerships are:

a) Limited partnerships

There is a managing partner, who basically runs the company and has the most liability, whereas, limited partners take on as much liability as their share in the business. However, limited partners have no control over day to day operations of the business and no decision making powers.

b) Limited liability partnership

LLPs have their own restrictions and generally lawyers and accountants form this type of company. The purpose is to have all partners run the business collectively, but not being responsible for each others actions or other liabilities.

3. Corporations

Most common type but also a bit complicated to create. Basically, shareholders create a separate legal entity to protect themselves from any liabilities related to company’s debts or any legal issues. Drafted articles of incorporation include all the company information like number of shareholders, location of the business, and the purpose. This type of business continues to exist even if the owner is not involved anymore.

There are 3 types of corporations:

C Corporation: The corporation and the owners are taxed and the owners receive profits.  

S Corporation: This type of company may consist of up to 100 shareholders. The profits are not taxed twice in this type.

Non-Profit Corporation: All the income must be spent of operations or planning. Mostly, charitable organizations use this type.

4. Limited liability company

In LLCs the owners have limited liability like in corporations. However, it is the most flexible business type, as it is a like a combination of corporations and partnerships. A limited liability company (LLC) is a type of entity that provides limitation of liability for owners, like a corporation. This also provides more flexibility when planning income tax.

Still have questions in mind with regards to the type of business you should choose, no problem. I can help by providing answer to all your questions so you have peace of mind that you have the right type of business setup which is a significant contributing factor to the overall success of your business. for a business consultation!